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China is pushing the country’s leading automakers to produce up to a quarter of their chips locally by 2025. Amid rising tensions with the US, the world’s largest auto market is seeking to build a semiconductor supply chain.
The Ministry of Industry and Information Technology has asked automakers including SAIC Motor, BYD, Dongfeng Motor, GAC Motor and FAW Group to increase their local purchases of automotive chips to 20 to 25 percent by next year, people familiar with the matter said, adding that the aim is to increase the proportion well beyond the original target.
More than 30 million cars are sold in China each year, about a third of global sales, but the local supply of automotive chips is only about 10 percent.
The local procurement guidelines set by the government are not yet binding, people familiar with the matter said. Instead, a bonus or credit system will encourage domestic automakers to adhere to the national guideline. The target of 20 to 25 percent refers both to the number of chips per car and to their share of the total procurement value.
“The goal is ambitious,” said one of those involved, “it’s about using only locally produced chips for cars at some point.”
This article comes from Nikkei Asia, a global publication with a unique Asian perspective on politics, economics, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the largest and fastest-growing listed companies from 11 economies outside Japan.
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As Nikkei Asia learned, China is also seeking increased local sourcing of other components for electric vehicles, such as electronic control units, displays, and heating and charging systems.
Beijing’s push to boost domestic chip use coincides with a worsening technology war between the U.S. and China. The U.S. has said it will impose 100 percent tariffs on Chinese electric vehicles later this year and raise tariffs on Chinese-made semiconductors to 50 percent by 2025.
The majority of chips used in vehicles, such as sensors, microcontrollers and power management, do not require cutting-edge production tools and technologies. This means that Chinese chipmakers and suppliers could benefit from the policy initiative as they are technically not affected by US export control restrictions on advanced chip manufacturing technology.
Reliability and safety are critical for automotive chips, which is why automakers are usually hesitant to switch suppliers. The sector has long been dominated by Western and Japanese companies such as Infineon, Texas Instruments, STMicroelectronics, NXP and Renesas.
Antonia Hmaidi, senior analyst at the Mercator Institute for China Studies, said the unprecedented chip shortage in 2020 and 2021 provided an opportunity for Chinese chipmakers to enter the domestic automotive supply chain as automakers scrambled for supplies.
The industry’s shift to electric vehicles is another opportunity. “The industry does not yet have established supply chains for electric vehicles, which means that now is a good time to [newcomers] to enter the market,” said Hmaidi.
“With electric vehicles, we’re seeing a complete restructuring of the supply chain,” she added. “Chinese companies see electric vehicles as smartphones on wheels, so … many of these capabilities and components that work for smartphones also work for electric vehicles.”
However, she added that it was unlikely that Chinese chipmakers could fully replace foreign chips, and that for mission-critical functions such as braking systems, replacing established international suppliers would be a challenge.
The value of semiconductors per car is forecast to rise from $540 in 2022 to $912 in 2028. The market volume is expected to almost double from $43 billion to $84.3 billion over the same period thanks to significantly more electrical functions, according to the Yole Group chip research project.
Several Chinese automakers, including BYD, have their own semiconductor production facilities. European chipmaker STMicroelectronics formed a joint venture with Chinese company San’an Optoelectronics to produce silicon carbide chips in China and continue to serve the market there.
According to the China Association of Automobile Manufacturers, China exported nearly 5 million cars in 2023, up nearly 60 percent year-on-year. Of these, 1.2 million were electric vehicles, up over 77 percent year-on-year.
China has a clear lead in electric vehicles: According to the International Energy Agency, they accounted for 18 percent of all cars sold in the country in 2023, compared to 14 percent in 2022 and just 2 percent in 2018. In 2023, China accounted for nearly 60 percent of newly registered electric vehicles worldwide, with Europe accounting for nearly 25 percent and the United States accounting for 10 percent.
A execution This article was first published by Nikkei Asia on May 16. ©2024 Nikkei Inc. All rights reserved.